Friday, October 30, 2009

On the Topic of Money Management

I write this somewhat amused.  You see, when you post into an open forum, you immediately agree (implicitly) that you allow yourself to become a lightning rod.  Even if you don't agree to this outwardly, inwardly, it comes with the territory.

Today saw this exemplified.


Yesterday, I posed my commentary on what I saw as the state of the market.  I specifically stated

"...but this is a tell on what I am going to do today:



1) Purchase 25% positions in my LONG ETFs, such as UWM, SAA, QLD, DDM, SSO, and MVV.

2) HOLD my 100% positions in my contra ETFs, which are FXP, TWM, MZZ, SDD, QID, SDS, and DXD.



If we get a move upward today in the long ETFs, followed by another long move tomorrow, I will sell my contras and add another 25% to my long ETF positions, provided that we're moving above the previous day's trading range (e.g., buying on strength)."

Now, let's look at why I did what I did yesterday ...

In that same blog I posted a chart entitled "Strength of Various Major Indexes".  Here's the chart:



See the right most portion of the graph?  See that it's near 0?  Take a look at the previous two times we got this low ... what happened?   Do you think it's prudent to at least consider some long positions?  The correct answer is "Yes, it is prudent".

So I did.  And I purchased 25% positions in the following:

INSU, UWM, SAA, QLD, DDM, SSO, MVV, UYM, UYG, DIG, & HRS.

Note that I was already holding 100% positions in the following contra ETFs:

TWM, SDD, QID, DXD, SDS, MZZ, SMN, SKF, & DUG

as well as core (100% positions) in UWM, QLD, DDM, and SSO.

If we ignore the core positions (since they're up a bazillion and form part of a different strategy), it should be obvious that I'm:

  1. trading pairs of ETFs
  2. have a 4:1 bias to the downside
I listed the ETFs in orders of the pairs of the long side / short side.  Making it easy for you:

  • UWM/TWM
  • SAA/SDD
  • QLD/QID
  • DDM/DXD
  • SSO/SDS
  • MVV/MZZ
  • UYM/SMN
  • UYG/SKF
  • DIG/DUG
Why 25% positions?  Why not 100%?  Because the trend is your friend, and prior to yesterday, the trend was DOWN. ***BUT***, I had a chart that indicated we were certainly within buying range, so I bought the long side of the list above by about 10:15 a.m.

Futures were up, and the markets roared yesterday.   I stated in a NoVA VectorVest forum posting at 2:51PM on 10/29:

"Is today window dressing by the hedge funds to maximize value in face of redemption requests that have to be tendered this month (tomorrow) to be effective by the end of the year?  Possibly.  [I had] the talking heads on CNBC all day and haven't heard one mention of this, increasing the probability of a down draft."


We'll never know the answer to this question but in our rear-view mirror analysis from today (Friday's action), it certainly appears that this is EXACTLY the case.  Again, we'll never know.


Every position made money by the close.  NOW WHAT?


I let the positions ride over night.  This morning (Friday, 10/30), I checked futures -- all seriously heading south.  Every ETF and stock was up that I had purchased on Thursday, so I set 1 ATR as a trailing stop loss (TSL) on each of the positions purchased Thursday, and 2 ATR TSLs on the contra positions that I was holding.  I set the period for each of these TSLs to "DAY", rather than "GTC".


Not one of the long positions triggered at the open ... the EXACT desired purpose of using an ATR TSL.  No question the day was ugly ... every single one of my new long ETF positions was underwater by 11:00 -- not good.  By 12:48 the TSLs began to fire, and by 2:55 PM I was out of my long ETFs.


Did I lose money?  NO.  Here's why:


The long positions were a 1:4 hedge against contra positions, and for every $1 drop of the long, I made roughly $4 on the contra side.  If you separate the transactions, yes, the longs lost money.  The worse transaction lost about 2% ... of a 25% position.  So if you invested $10,000 per position for 100%, then $2,500, would be 25%, and 2% of this is ... $50.  50/10,000 is 0.5% total loss per position.


So, I was wrong, but only about the market direction.  Because I was hedging, I could have gone either way independent of market conditions.


Let's take this the other direction ... what would I have done had the market gone up?


Per my original quote above:



"If we get a move upward today in the long ETFs, followed by another long move tomorrow, I will sell my contras and add another 25% to my long ETF positions, provided that we're moving above the previous day's trading range (e.g., buying on strength)."

==============

Please, all, understand what I did.  This is not posted to say that this is "THE WAY", but it is "A WAY" on how to play this market.  Please don't be critical that I moved into longs and that the market went down -- that scenario was FULLY baked in to the money management that I chose.
 
I welcome your comments below.

As always, thanks for the dialog.

Regards,

pgd

Thursday, October 29, 2009

GGT Notables from Wednesday, October 28th

I know that I'm a few days remiss on this.  Yahoo! has not been cooperating with the GGT updates, and random stock symbols are stalling during the overnight run, causing the entire process to crash to its knees.  I'm caught up now, and here's what the tea leaves are telling us:

The GGT price index closed at $18.22, down 7.5% from the peak of $19.70 which was attained on 10/19.  Volume has been increasing (slightly), and yesterday's volume was 1.85M shares, where normal 50-d volume has typically been 1.49M shares.  When we see a large downward spike on higher volume we can take this to mean that we're seeing institutionals play the market accordingly.

We broke through our lower channel line on Tuesday, and are now 4% below the lower channel and 10.8% from the upper channel.  Of some concern to me is that we closed below the 65d EMA on the NASDAQ Composite Index (IXIC), which historically has been a great support level.  The .DJI and the .SPX are still well above the 65d, so we're ok for the short term, but keep your eyes peeled on these levels.

Telling here will be the slope of the GGT Price 55d EMA.  With the exception of the July drawdown in the markets, it's been trending steadily upward since 4/2/09. On July 8th it went horizontal, dropped a bit by July 13th, and from July 14th onward it resumed it's upward trend.  Drawing the parallel to now, on October 26th this trend line went horiztonal, dropped a penny yesterday, and we need to see it trend higher to have confidence in the next sustained up leg.

I spoke of the GGT / Elder Force Index in my blog over the weekend.  Key here is that the 2d EMA of the FI dropped to -790K, indicating the possible start of a new up leg.  Here's the chart:



The GGT Long-Cash Ratio (LCR), which is a measure of the number of long recommendations (1244) to cash recommendations (3808), is at an extremely low level of 0.327.  It has not been this low since 7/9, and is indicating that the markets are becoming over sold.  We want to see some churning at the bottom here, not a sharp reversal, so today (Thursday) will be an interesting day.  If we hold this LCR value and the markets move upward, I would expect that we will begin the new up leg.  If LCR falls a significant amount but the markets move upward, I think we could move much lower.  If LCR jumps upward a significant amount in a reversal, on higher market prices, I think the leg upward will be short-lived -- gains possible, but short lived.  We'll see.

This next chart is telling about what we can expect in the near short term:



Look at the right side of the graph ... most of the indexes that I follow using GGT are at or well below 0.2.  Granted, this is a new indicator, and the back-testing history is nearly impossible to attain, but this is a tell on what I am going to do today:

1) Purchase 25% positions in my LONG ETFs, such as UWM, SAA, QLD, DDM, SSO, and MVV.
2) HOLD my 100% positions in my contra ETFs, which are FXP, TWM, MZZ, SDD, QID, SDS, and DXD.

If we get a move upward today in the long ETFs, followed by another long move tomorrow, I will sell my contras and add another 25% to my long ETF positions, provided that we're moving above the previous day's trading range (e.g., buying on strength).

Here are the raw strength numbers of the indexes that I'm following:

DJ30:  0.176, down from 0.182 (bottoming?)
NDX100: 0.051, down from 0.172 (near bottom)
Brazil: 0.165, down from 0.194
Russia:  0.111, down from 0.388
India:  0.00, down from 0.024 (buy buy buy buy)
China: 0.102, down from 0.204
S&P500:  0.030, down from 0.161
S&P400: 0.013, down from 0.142
S&P600:  0.042, down from 0.143
Russell 2K:  0.00, down from 0.100 (buy buy buy buy)

In case you're wondering, here are the strongest Russell 2K stocks, according to GGT:


INSU
FISI
UBSI
IRC
EHTH
ASEI
RSYS
OESX
SUSQ
BFIN
TRMK
PCBK




The strongest DJ30 component is VZ.

The NASDAQ-100 is bloody, but the two that appear strong are:


CEPH
SRCL

I recommended PTI over the weekend in India, and it is still holding up well.

China is looking bloody too, but here are the strongest:


SPRD
CTRP
HRAY
JOBS
YZC
WX
LONG
CMM
TSL
NPD
ACH
VISN
TCM
PTR
NCTY
LFC
SNP


On the S&P500, Here are the strongest:


TSN
VZ
HRS
CVH
WLP
CEPH
XOM
SRCL


Good luck today.  Remember, you are responsible for your own trading decisions.

Regards,

pgd

Sunday, October 25, 2009

Notables from Friday, October 23rd, 2009

It's been a busy weekend on the update front -- over 4000 stocks were updated concerning their EMAs.  I've been working on some improvements to the speed of the optimizing code and I think that this new version will help me get through 5000 stocks faster, perhaps in 2 weeks or so.  I really need you software people to step up here because I'm not writing code as fast as I used to ...

GGT price fell again on Friday to $19.19, down from $19.51 on Thursday, and on relatively normal volume of 1.43M shares.  The 5, 8, 13, 22d EMA lines are trending down, and if we continue to have a down day on Monday the 34 will be under immediate pressure and the 55 may go horizontal.  Here's the latest graph of GGT price (thin line) and the EMAs.  Click on the graph to enlarge.



 =========

The chart below is Elder's GGT Force Index, plotted with the GGT Price.  I've only taken the data since July so that you can see the details.

We've said numerous times in the past that the GGT Force Index is a great indicator; take a look at this figure:



Some points to note with respect to the time frame shown:
  • Once the Force Index (FI) peaks, GGT price does not move appreciably higher:
    8/3 peak @ $17.83 on FI = 467K, subsequent peak @ $17.96;
    8/21 peak @ $18.09 on FI = 374K, subsequent peak @ $18.18;
    9/16 peak @ $19.17 on FI = 493K, subsequent peak @ $19.28;
    10/6 peak @ $18.99 on FI = 339K, subsequent peak @ $19.68 (perhaps an exception);
  • Generally, when the FI dips below ~-450K, we trigger upward, usually around +4-5%;
  • The present FI is at -276K; while it is possible to reverse higher and sustain it, the data on this chart suggests that we will continue to drop a bit more.  I'd really like to see a drop below the 400K-450K level to signal a new up leg.
==========

I've been discussing the GGT channel lately; here's the chart:

















As you can see we are still within the channel indicated, and are 4.7% below the upper trend line of $20.08 and are 1.6% above the lower trend line of $18.88.  Our present price of $19.19 is right at the support line formed by the tops generated around 9/16-9/21 ($19.17, $19.13, $19.20, and $19.12), so the next few days will be interesting.  I think we can fall a bit more (perhaps 1.6%?) if we penetrate this support; if we penetrate the lower channel line then the next support is around $18.50.  This chart suggests that if history is any indicator, we'll pull back a bit more then reverse.

==========

Below, I've plotted GGT Bull Strength on a log-y axis so that we can get a view of the bottoms and our present value of GGT bull strength  This is not a log-relationship -- I changed it purely for visualization purposes.  Although you can read anything you want into tea leaves, we get reversals and sustained up-trends when the GGT Bull Strength drops below 0.1  Our present value of 0.233 suggests that we could drop a bit more from here before reversing.


=======

The Long-Cash Ratio (LCR) has dropped below 1.0 to a new value of 0.912, indicating that there are 2414 stocks in the database with a long recommendation and 2648 with a cash recommendation.  When you view this next graph you'll see that we can have a tremendous amount of fun with it:



The first thing that your eye should see is that we are forming the 2nd dip of a "W" pattern.  If you doubt this, take a look at where I've drawn the vertical arrows at the middle of each "W", from the LCR value to the GGT Price value.  We are clearly on the 2nd portion of *some* down leg; the question is whether it will drop as low as the 1st half, or better yet, whether it will mimic the behavior of the first two "W"'s, with a lower 2nd dip on each of the previous two occurrences.

The second thing to realize here is that if the past is any indicator (and we know that it's not in general), the upside portion of the 2nd dip could be pretty substantial, and FAST:
  • The 5/22 to 6/4 run up in LCR saw the GGT price go from $15.30 to $16.58, a 8.3% change to the upside in 9 trading days;
  • The 7/10 to 7/27 run up in LCR saw the GGT price go from $15.42 to $17.28, a 12.1% change to the upside in 12 trading days;
  • The 9/3 to 9/18 run up in LCR saw the GGT price go from $17.70 to $19.20, a 8.4% change to the upside in 11 trading days.
Of course, my crystal ball is as good as yours, so none of this may materialize and we may simply plunge; that is always a possibility.  Seems though that the market is in need of going up, so I think we'll reverse here within 10 days or shorter.  All I'm stating is that we all need to be vigilant for such a change to a move to the upside.

========

In terms of our GGT Change Timer, it's presently sitting at a value of 0, and whipsawed the last couple of days.  This is indicative of a horiztonal market, and up to Friday, the LCR was bouncing around 1.56 (Fri/Mon) and around 1.09 (Wed/Thr).  The bias is still downward, and this was confirmed on Friday, October 16th with the Cash (-1) call.  The move into Contra positions the following Monday (10/19) was justified from a timer point of view, but we have lost about -0.8% in our overall "ideal" equity curve.  Nothing to get worried about.


If you are sitting on Contras, given the LCR "W" position that I spoke of above, I would hang on to what you have and be vigilant to a significant move to the upside.

===========

GGT Strength is now at 0.427 and has not been this low since early October.  The LCR and the strength index are in synchronization, which means that they are supporting each other's moves and that this is a good thing.  Unless presented information to the contrary there is NOTHING suggesting that we are going to reverse here, so for now, weakening database stocks is the call on the table.

===========

The last section here concerns the strengths of the various indexes that I am watching.  The weakest index is INDIA, with a value of 0.014.  Next in line for the domestic indexes is the Russell 2000 -- it has a value of 0.2 on a scale of 0:1 and fell a dramatic 60% on Friday, from 0.511 to 0.201.  ALL of the indexes, with the exception of Russia (which has been contrarian and has been at solid strength) fell, reflecting nearly wide-spread participation.

Note, these are all VERY FAST timers, on the order of days.  Do NOT confuse these signals with longer-term EMA signals, such as the 5-13-22 or the 8-13-22 sequence.  They will NOT be the same, guaranteed.

DJ30: 0.341, down from 0.647
NDX100: 0.296, down from 0.570
Brazil: 0.461, down from 0.582
Russia: 0.667, unchanged (!!!!)
India: 0.014, down from 0.088.  Be careful ....
China: 0.469, down from 0.604
S&P500: 0.290, down from 0.672
S&P400: 0.313, down from 0.615
S&P600: 0.256, down from 0.559
Russel 2K: 0.200, down from 0.511

First of all, take a look at India ETFs: FNI, EPI, PIN, INR, INP, and ICN.  PIN and INP are "New Cash" recommendations, and individually, they appear to be the boat anchor's in the lot.  The other ETFs, specifically FNI and INR, are showing good strength (columns AB and AC from the ETF worksheets that I post daily), but are terrible volume.  As far as I'm concerned, until we see some up tick here, the low values in India are going to stick.

Take a look at the Indian stocks that we track, visible from the GGT stock Dashboard file I posted over the weekend.  PTI looks strong, and is at a 52-week high .  This one has had quite a run up, and it appears to be clearing resistance.  Keep an eye on it for continuing to move upward. Any of the other Indian stocks (check the GGT Dashboard file) that are showing a Long or Aff. Long status could be a good basket to trade in the short term -- any time we are at this low of lows we should be trying to identify long stocks that will participate if the market moves higher.

As far as the other indicators, I'd wait until we have a better idea if they are going to continue lower.  I like to see values < 0.2 for a couple of days before calling for a hedge position ...

Remember, you're responsible for your own trades ...

Regards,

pgd








Thursday, October 22, 2009

GGT Notables from Wednesday, October 21st

GGT Price fell to $19.35 from $19.51, a decrease of -0.82%, on above average volume of 1.64M shares. The 13d price EMA is hitting a peak and if today is down, the trend line for the 13d price ema will be negative. We would be watching for it to bounce off either the 22d or 34d, depending upon your time horizon. The upper channel of GGT price just cleared $20.01 and we are now about 3.4% below that value. The lower channel of GGT price is now at $18.81 and we are 2.9% above that level. I'm looking for GGT price to drop to this lower channel and be supported.

Elder's Force Index, when applied to the GGT universe, is very negative and is trending lower. This is not a time to enter new longs -- not yet.

The Long-cash ratio (LCR), which is a measure of the number of LONG recommendations (2618) to CASH recommendations (2398), has dropped to 1.092 and is indicating that the bears are winning in the short term. Every EMA applied to the LCR is in a down trend, so cash or contra ETFs are favored.

GGT strength has dropped to 52%, and tells us that we have equal probability of a rise or a fall from here. Of particular importance is that the CHANGE in strength seems to be "less negative", meaning that we could see a bounce here.

Given everything that we're seeing, I think we're in the middle of our downward channel and we should be sitting in short-term contras. If you followed me the past couple of days you're looking at some nice single-digit (and soon-to-be double digit for some -2x leveraged) gains on each of your contra positions.

Here's the strength index numbers of various indices:

DJ30: 0.541, down from 0.658. Do you have a position in DOG or DXD?
NDX100: 0.378, down from 0.573. Do you have a position in PSQ or QID?
Brazil: 0.446, down from 0.605
Russia: 1.00, up from 0.833. Talk about bucking the trend!
India: 0.176, down from 0.411
China: 0.653, down from 0.844. Do you have a position in FXP?
S&P500: 0.481, down from 0.669. Do you have a position in SH or SDS?
S&P400: 0.403, down from 0.560. Do you have a position in MYY or MZZ?
S&P600: 0.380, down from 0.463. Do you have a position in SBB or SDD?
Russell 2K: 0.341, down from 0.409. Do you have a position in RWM or TWM?

It's probably too late to jump on the contras for these indexes if you are not already holding. PAPER TRADE at this point. If these values drop to 0.2 or lower, it'll be time to start hedging to the long side.

India, with a value of 0.176, is already a candidate for looking at long positions. GGT stocks in India that could be attractive IN TERMS OF GGT RECOMENDATION (I've not checked the charts, that's a job for you) are: SAY, IBN, TTM, and MTE. All are getting beat up relatively hard compared to their peers, and could bounce back fast. The strongest Indian stocks are PTI, RDY, WNS, WIT, SIFY, SLT, HDB, and INFY. Do your homework.

Enough for now. Futures are down slightly at a bit after 7 a.m. EDT; we'll see how the day unfolds.

Regards,

pgd

Wednesday, October 21, 2009

GGT Notables from Tuesday, October 20th

GGT Price fell from $19.70 to $19.51 on average volume of 1.49M shares. All pricing EMA lines (> 8d) are still with a positive slope, although they are under pressure. The upper pricing channel line is at $19.97 and is 2.4% away from the present price; the bottom channel line is at $18.76 and is 3.9% below the current price.

If you are not hedging with a Contra position, you're getting too late to do so, according to the present channel position of GGT.

The GGT LCR fell from 1.566 to 1.352, indicating that 2883 stocks have a long recommendation and 2133 have a cash recommendation. The 4-day trend is DOWN. The change trend is whipsawing, meaning that we keep bouncing between up and down. It's difficult to make any money trading broad indexes in this market, so I'm not trying.

GGT strength is about mid-scale at 0.58, and the trend is DOWN.

GGT pricing is now lower than both 1 week ago as well as 2 weeks ago, which is a warning sign.

Here are the strength numbers of various indexes:

DJ30: 0.658, down from 0.764
NDX100: 0.573, down from 0.688
Brazil: 0.563, down from 0.640
Russia: 0.833, UP from 0.777
India: 0.411, down slightly from 0.411
China: 0.844, down from 0.987 (did you enter FXP?)
S&P500: 0.669, down from 0.813 (did you enter SDS?)
S&P400: 0.560, down from 0.754 (did you enter MZZ?)
S&P600: 0.463, down from 0.680 (did you enter SDD?)
Russell 2K: 0.409, down from 0.684 (did you enter TWM?)

In the DJ30, we've had a NEW CASH/AFF CASH appear on the following: BAC, DD, VZ, and INTC.

The list of NDX100 stocks that are NEW CASH/AFF CASH are (in no particular order):
QCOM
CTAS
VRTX
BIIB
WYNN
BBBY
PDCO
CEPH
GENZ
MRVL
PPDI
HOLX
AMGN
PAYX
INTC
FAST

For Brazil, I'm look at the following: BAK and ERJ; both are NEW CASH

For China, here are the NEW CASH/AFF CASH:

XIN
GU
ATAI
NTES
SOL
ATV
EDU

If you find good candidates in these, drop me a note or post a comment.

Happy hunting!

Regards,

pgd

Tuesday, October 20, 2009

GGT Notables from Monday, October 19th

Sorry that I have not yet posted the summary from the weekend; I had a hard drive die with a power surge on Sunday (no, not a GGT machine, thank goodness!) and recovery has been hampered by not having recent backups... Grrrrrrrrrrr

GGT Price has topped out at $19.70, which is just above the values of last Wed/Thurs of $19.68 and $19.69 respectively. Resistance? When three points are this close to each other, and we don't seem to have volume to push it higher (volume was 1.32M shares, down 10% from average). I'm concerned that AGAIN prices jumped 1.129% higher Monday but volume fell -- I can't help but feel that this is a sucker's rally. Sure, we can make some money in the news, but the risk is getting higher and higher ...

Note that the upper channel line formed by the GGT price is now at $19.939, so with Monday's close, we're 1.2% below the upper channel and 5.1% above the lower channel value of $18.74.

The GGT LCR, which is a measure of the number of long recommendations (3061) to the number of cash recommendations (1955), is relatively unchanged (+0.013 points) from Friday's close. Folks, this is a HUGE divergence ... rising prices when the database is churning is a big warning sign. It is impossible to maintain rising database prices but keep the LCR constant ... something has to give. Either we will see higher prices on higher LCR or the converse.

The LCR change timer is whipsawing, and is now moving towards a CASH/LONG --> LONG call. If today is up significantly we will see it move to the long side (+1), and should be positioned accordingly. Last week's performance in GGT using this timer was less than stellar: we only moved upward 0.08%, hardly worth the risk, and certainly so when commissions are considered. This is getting to be a hard market to invest within.

Finally, when we look at GGT strength from an overall perspective, although we THINK we're overbought, we're really not, especially when compared to historical levels. GGT strength is indicating 0.70 on a scale of 0:1, and this suggests that we have room on both the upside as well as downside areas to move.


Here are the strengths and trends of the various markets:

DJ30: 0.76, down from 0.80
NDX100: 0.688, up from 0.525
Brazil: 0.640, down from 0.728
Russia: 0.777, up from 0.722
India: 0.441, down from 0.529
China: 0.98, up from 0.609
S&P500: 0.813, up from 0.726
S&P400: 0.754, up from 0.62
S&P600: 0.68. up from 0.590
Russell 2000: 0.684, up from 0.583

Of particular note here is China. I plan to purchase another 25% position in FXP as a hedge today, since we're seeing so much strength right now in the China market. I already own one 25% position in FXP.

The S&P500 is interesting too -- I will purchase a 25% position in SDS as a hedge against my SSO position, since the oscillator jumped nearly 10%.

Regards,

pgd

Thursday, October 15, 2009

GGT Notables from October 14th, 2009

Obviously, October 14th was a huge day. For those of you who are sleeping like Rip van Winkle, we cleared Dow 10K and held it, finishing stronger by the end of the day.

GGT ETFs finished strong. The question is "Now what?" Are we overbought? Is it too risky to enter equities at this time?

"Trade the market we have, not the one we want...."

Due to a communication error with my PC's at home, I'm unable to access GGT stock information (I'm in Pasadena). So, no input this morning from a stock point of view.

The market we have is certainly supportive of long positions. There is NO support for contra positions, except TBT (20yr short long bond), TYO, and TMV.

TBT gapped up yesterday and finished strong. I'm considering a position if we continue higher than $46.89 after 10 a.m. My target for this ETF is $49.54.

TYO is too thinly traded for my blood.

TMV has been rising in 10d volume and is now at 124K shares @ 10d average vol, and trading above $67.42 would be bullish. My target for this ETF is $68.87.

EFA has signaled "New Long", and a viable target for this ETF is $64.12. I intend to enter with a full position if it trades above $56.71 after 10 a.m.-ish

SPY has signaled "Affirmed Long", and a viable target for this ETF is $114.34. I intend to enter with a full position if it trades above $109.42 after 10 a.m.-ish

VXF has signaled "Affirmed Long", and a viable target for this ETF is $44.47. I intend to enter with a full position if it trades above $42.83 after 10 a.m.-ish.

DRN has signaled "New Long", and a viable target for this ETF is $142.54. I intend to enter with a 33% position (it's a 3x) if it trades above $134.50 after 10 a.m.-ish.

EEM has signaled "New Long", and a viable target for this ETF is $44.77. I intend to enter with a full position if it trades above $41.55 after 10 a.m.-ish.

MVV has signaled "New Long", and a viable target for this ETF is $44.88. I intend to enter with a full position if it trades above $40.54 after 10 a.m.-ish.

HAO has signaled "New Long", and a viable target for this ETF is $28.26. I intend to enter with a full position if it trades above $25.07 after 10 a.m.-ish.

SCZ has signaled "New Long", and a viable target for this ETF is $41.09. I intend to enter with a full position if it trades above $37.71 after 10 a.m.

EWD has signaled "New Long" and a viable target for this ETF is $26.24. I intend to enter with a full position if it trades above $24.20 after 10 a.m.

EWS has signaled "New Long", and a viable target for this ETF is $12.19. I intend to enter with a full position if it trades above $11.19 after 10 a.m.

=========

Remember, you are responsible for your own trading decisions.

See you Saturday!

Regards,

pgd





Tuesday, October 13, 2009

GGT Notables from Monday, October 12th

Monday gave us another all-time high in GGT price -- $19.40 -- but again, on terrible volume of 1.09M shares, a full 27% below the 50d average volume level of 1.49M shares. Visions of the Robot in Lost in Space "Warning Will Robinson", with arms flailing, are dancing in my head.

Bull-strength continued to fall, indicating that while prices are going up, the number of New Longs + Affirmed Longs continues to drop. You can't sustain rising prices with a falling bull-strength -- it's impossible over the longer-haul.

The GGT LCR fell again, albeit only slightly, from 1.35 to 1.322, with 2827 stocks now indicating a long status and 2139 stocks indicating some form of a cash status. This is a -2% change in the LCR, and it's not much.

Because of two successive days of falling LCR, the LCR change timer also has moved from a LONG/CASH (0) to a CASH (-1) position. This timer is recommending that all short-term long positions be closed.

GGT strength continues to fall, and is now at 0.70, down from 0.75. This is still somewhat bullish, but the trend is weakening, which is not the direction we want to move. Nevertheless, we could easily rise from here, especially in a bull market. Note too though that we could easily fall :)

Here are the individual index strength numbers:

DJ30: 0.788, rising 1d
NDX100: 0.637, falling 2d
Brazil: 0.83, falling 2d
Russia: 0.941, rising 1d
India: 0.323, falling 2d
China: 0.765, falling 2d
SP500: 0.94, rising 2d
SP400: 0.858, falling 2d
SP600: 0.834, falling 1d
Russell2k: 0.86, falling 1d

Yucky. Get your contras ready in the appropriate indexes, and play them if they break decisively above yesterday's high range level (see the weekend post for details). DO NOT USE MONDAY'S LEVELS -- do your homework.

Remember, you are responsible for your own investment decisions...

I'm traveling the rest of the week, so postings may be delayed each of the upcoming days.

Regards,

pgd

Sunday, October 11, 2009

October 9th Weekend Update

**** [Click on any picture to view in detail] ****

With Friday's close GGT has hit an all-time high in price of $19.36, $0.08 higher than the previous high set on 9/22. Volume on Friday was in the toilet, 1.14M shares, which is 24% lower than the normal average level of 1.50M shares. This past week has been poor for volume -- -15%/-3%/-21%/-3%/-24% -- and when I see this I get really, really nervous.





Looking back, the period starting May 11 - July 27 was characterized by successive periods of low volume, and the period June 2nd through June 25th saw continuously below average volume every day. Note too that this same 6/2 - 6/25 period saw range-bound prices: we closed 6/2 with a price at $16.54 and we ended 6/25 at a price of $16.04, with a high during this time of $16.63 and a low of $15.49, a 7.4% range.

The close on 6/1 at $16.48 on only 1% above average volume was a new high for GGT, relative to that date. The next day (6/2), prices finished higher again at $16.58, another new high, on -2% below average volume. On Thursday, 6/4, we closed at $16.58 again, on volume -8% below average, and this established $16.58 as a resistance level. On Friday, 6/5, we tried again, closing at $16.57, on volume -11% below average. On Tuesday, 6/9, we closed at $16.56 on volume -22% below average -- we demonstrated the inability to break through resistance. On Thursday, 6/11, we closed at $16.63 on -5% below average volume, a new high for GGT relative to that date, and we never revisited that value until 7/20.





My point here is that there are many parallels between then and now. We are just hitting a new high in GGT, but are doing so on weak volume. If the past is any indicator, we will continue to push upward in price, but do so on lower volume, not higher volume. I have no idea where the top will be, but a channel line formed with the top on 5/8 ($15.83) and 9/22 ($19.28) (94 trading days) indicates that we could see a GGT upper bound around $19.76, or another 1.9% higher than where we are today. This increases at a rate of about $0.037 per day, so by this time next week we could see an upper channel line around $19.91 or so. We'll see...

On the support side, we can take the line formed from the 5/13 low ($14.90) and the 10/2 low ($18.39, 99 days), and establish that we are about 4.5% above this support line value of $18.53. I draw channel lines relatively parallel and look for 3 or more points where the line intersects, in case you're wondering (support slope is $0.035 per day). A pullback to this area but a refusal to drop below it would be a bullish indicator to move in with new entries.

===========



The GGT Long-Cash Ratio (LCR) FELL on Friday, just a bit, from 1.369 to 1.350, and is now indicating that 2857 stocks are long in the database and 2116 are in cash. This change to the negative side is almost in the noise floor, so I wouldn't read too much into it, but generally, when we get higher prices, yet we have GGT falling, we end up with some form of profit taking and a drop in prices. This may be too close to call so we'll just have to watch. Bottom line, even though it dropped, it didn't drop much, so regardless, there was not tremendous conviction in the market as a whole.





GGT Bull Strength, which is a ratio of the number of (New Long + Affirmed Long) : (New Cash + Affirmed Cash) positions fell on Friday to 1.13, down from 2.00 on Thursday. This indicator was sitting at 0.08 last Friday (strong move to cash) and although it did bounce up to 2.00 by Thursday, it's had a hard time breaking out. This indicator is most meaningful when the LCR is opposing the direction of bull-strength, but this week saw both increasing/decreasing in sync. The reason these two are important together, it's not consistent for LCR to increase (more Long positions than Cash) but have the number of New Cash/Affirmed Cash positions grow faster than the New Longs/Aff. Longs. Keep watching for a divergence -- until then, the trend is intact (except for the light volume warning indicator).





The GGT change timer moved from Long (+1) to Long/Cash (0) on Friday, caused by the drop in LCR. Since the drop in LCR is so slight, I would not read too much into this -- it could whipsaw if we have a strong Monday. Conversely, this could be a perfect setup if LCR continues to drop ... a truly good "first indicator" for moving to the cash side. On the long side this timer is up 54% since 9/11/08 and on the contra side is up 26%.

The way I trade this timer with the "0" status is watch the ADV/DEC line today around 10-11 a.m. You can watch it here: http://finance.yahoo.com/advances If the Declining Issues to Advancing Issues Ratio is better than 1.8 (note that this is reversed of the move to the long side), then there is a reasonable expectation that we'll continue to the downside, for the day. At this time I look at the best performing Contras and generally place a limited position (25% or so of my normal per-equity position, but not less than $1,000) on the best performers at this time. Note that PST and TBT are the only leveraged contras that seem to be performing with any recent strength ...

GGT Long Strength and GGT LCR are in sync ... both fell on Friday on higher prices. This is a clear warning sign that the underlying database of ~ 5000 stocks is weakening. This does not mean that Monday will be a down day, but it certainly is not a sustainable condition. Either we'll need to see strength increase in the database to support higher prices, or we'll have to see price pressure relax, resulting in synchronization between a falling LCR/strength and prices.

============

Individual index strength is all over the map. Here's the most recent rundown from Friday's close:

DJ30: 0.74, down from Thursday peak of 0.81
NDX100: 0.67, down from Thursday peak of 0.76
Brazil: 0.85, down from Tuesday peak of 0.95
India: 0.38, down from Tuesday peak of 0.79
China: 0.84, down from Thursday peak of 0.90
S&P500: 0.94, down from Thursday peak of 1.00
S&P400: 0.89, down from Thursday peak of 1.00
S&P600: 1.00
Russell 2000: 1.00

Based on these values alone, we can draw some conclusions:

Russell 2000: TWM, the -2x leveraged inverse of the Russell 2000, is a great candidate for entry if we see any strength above $28.10. RWM is the -1x inverse and we'd want to see some action above $46.45 before entry.

S&P600: SBB is the -1x inverse of this small-cap index but is thinly traded, with only 16K shares average volume over the last few days. The SDD is the -2x leveraged inverse of the S&P600 and while it is a bit more liquid, it still is not a barn burner. We would want to see some action above $29.90, but since this is so close to the psychological level of $30.00, I'd say let's make sure we have action well above $30.30 or so before considering this one.

S&P400: MYY is the -1x inverse of the mid-cap index and is thinly traded, so I'm going to ignore this one. MZZ is the -2x leveraged inverse of the S&P400 and is more liquid, with a 10d average volume of 230K shares. I want to see action above $24.96, but again, since this is very close to the psychological level of $25.00, let's look for action well above $25.25 before giving broad consideration.

S&P500: SH is the -1x inverse of the large-cap index and is very liquid, around 2.8M shares 10d average volume. I want action above $55.80 before considering this one for entry. SDS is the -2x leveraged of the S&P500, and we want action above $39.70. Given that is is very close to the psychological level of $40.00, look for a threshold today above $40.40 before consideration.

China: FXP is the -2x inverse of the Xinhua 25 FTSE index. This is a very liquid ETF, and movement above $8.91 would be bullish.

NASDAQ-100: PSQ is the -1x inverse of this index, and it is very liquid at 275K shares 10d average volume. Look for movement above $48.00 before entry. QID is the -2x leveraged inverse of this index, and I want to see movement above $23.10 before entry.

Finally, DOG is the DJ30 -1x inverse, and is very liquid with 466K shares volume average for the last 10 days. I want to see prices above $56.60 before entry here. DXD is the -2x leveraged inverse of the DJ30, and again, I want to see trading above $34.60 before entry.

*** In all of these positions, just because they may hit their entry target today, it does not mean that I'll jump in with both feet. I intend to jump in only with 25% positions, and can always add later.

===========

For Monday, 10/12: I'm not expecting a tremendous amount of volume on Monday -- the Columbus Day holiday will certainly put pressure on heavy participation. Prices could go either way, but given where we are in the channel lines, we have a few % that we could go before we hit historical resistance levels.

Friday, October 9, 2009

GGT Notables from Thursday, October 8th

We're within $0.03 of our all-time high (about 13 months lookback) with the GGT Price -- with the close on Thursday we're at $19.25. We got there on volume of 1.46M, which is just below our 50d average volume of 1.51M shares. By themselves, these two indicators are bullish. If we finish above $19.28 on normal to higher volume we have to take this as long-term bullish.

All of the pricing EMAs, through the 55d, are in an up-trend. This is bullish.

The Long-Cash Ratio (LCR) jumped from 1.024 to 1.369, indicating that 2874 stocks are long and 2099 stocks are in cash. The LCR trend lines above the 12d are still continuing downward, but the 5d and 8d have just reversed to the upside. There is no other way to interpret this other than short-term bullish, but with the downward trends on the longer EMAs, it still shows that we are intermediate-term bearish. In 13 months of data it has been shown impossible to sustain an up-trend when the LCR is pointing downward. One or the other has to get in sync, so the jury is still out on what is going to happen over the next few weeks.

The LCR change timer is still pointing upward, and we moved "cash positive" yesterday with the change on Monday/Tuesday. The lesson here is to follow this timer, not our hearts.

GGT long strength jumped from 0.65 to 0.79, which has now put us back into bullish territory. I also track something called GGT cash strength, and it normally "leads" the long strength in magnitude. Thursday's action is a deviation of that rule: long strength in the database beat cash strength, and when this has happened in the past, a reversal has occurred within a few days. We need to pay attention to this, as it could signal a great entry for contra ETFs.

In terms of GGT strength of the various indexes, here's were we are sitting:

DJ30: 0.81
NDX100: 0.755
Brazil: 0.863
Russia: 0.705
Indai: 0.647
China: 0.903

S&P500, S&P400, S&P600, and Russell 2000 are all sitting at a 1.000

Consider your contra positions indeed.

Regards,

pgd

Thursday, October 8, 2009

GGT Notables from Wednesday, October 7th

Volume was incredibly low on Wednesday, the 7th, -21% below average, which is the second day this week of significantly lower values but higher prices. Here's the series:

Monday: $18.70 (up from Friday's value of $18.39), Volume -15% below average
Tuesday: $18.99, Volume -3% below average
Wednesday: $19.03, Volume -21% below average

I know those of you in the market are making money, but I can't justify the risk right now. Higher prices on lower volume (to me) is a "sucker's rally" because it shows that the institutionals are NOT participating. I need to see a big price day with a big volume day for me to believe in this rally. Until then, I'll miss out on the gains -- it's that simple.

Nevertheless, on pricing EMAs alone, we have a full "throttle up" situation, so if you're holding onto long positions, you're probably in good shape.

The LCR moved from 0.975 to 1.024, indicating that 2518 stocks have a long recommendation and 2459 stocks have a cash recommendation. DIVERGING from this gain in the LCR is the bull-strength, which actually fell from 1.53 to 0.73. Any time we see the bull-strength diverge from the LCR it means that while MORE stocks are moving to a longer-position, when we look at the number of stocks moving long relative to those falling to cash, the CASH stocks are winning. Think of bull-strength as GGT's "New Highs/New Lows" ratio. Prices --> upward, LCR --> upward, bull-strength --> downward = DIVERGENCE. In raw numbers, there are more stocks falling out of a long status compared to those moving from cash, even though the ones rated long are appreciating in price faster.

Just so everybody is aware, the intermediate-term EMA on the LCR peaked on 9/25 and has been falling ever since. The correlation of this daily value to GGT pricing value is 0.8813, which is very, very good. We may go upward in price (much to my chagrin), but I can't justify jumping in with both feet (disclaimer: I do hold a few longer-term core position ETFs).

Our GGT change timer is now into day 3 of the LONG recommendation. Since the recommendation went long, we have dropped about -1.8% in overall value. No timer is perfect -- remember that.

GGT strength of the entire database has fallen from 0.7171 to 0.6584, and we're now in no-man's land. Anything can happen below about 0.7 and above 0.3 or so. Your guess is as good as mine.

Here are the strength's of the various indexes and lists I am watching:

DJ30: 0.535, falling
NDX100: 0.590, falling
Brazil: 0.780, falling
Russia: 0.529, falling
India: 0.514, falling
China: 0.823, rising
SP500: 0.807, falling
SP400: 0.656, falling
SP600: 0.776, falling
Russell 2000: 0.735, falling

=========

Summary: we have rising prices on really low volume --> DANGER WILL ROBINSON! We have rising prices but a divergent GGT bull-strength --> indicative of topping. The GGT change timer, while long, has lost nearly 2% since going long, which is uncharacteristic, since it is up 51.4% in about a year.

Be careful out there. We need higher prices on higher volume. Ideally, we need two days of this to really show a powerful up leg. Until then, I plan to keep my powder dry.

Regards,

pgd

Wednesday, October 7, 2009

GGT Notables from 10/6

GGT price increased from $18.70 to $18.99, a gain of 1.55%, on average volume of 1.47M shares. Although I'm surprised, I would consider this bullish --> rising prices on solid volume is a good sign that we have broad participation.

GGT price EMAs are intact once we get above the 13d; all have resumed an upward trend. This is bullish, although as I always say, it's like driving with only the rear-view mirror to guide you....

The Long-Cash Ratio (LCR) moved from 0.768 on Monday to 0.975 on Tuesday, reflecting the recent bullishness that we've been experiencing. OF PARTICULAR INTEREST is that the LCR EMAs (8,13, 22, 34, 55) are all in a downtrend ... which I would consider intermediate-term bearish. Interpretation: while the daily LCR is moving up, the amount it is moving up is not enough to overcome the historical momentum that was created starting 9/24 and moving forward. To me, I think this is a crack in the ice.

TIMER CHANGE: Because the LCR Change timer has experienced two-days of back-to-back gains, it has flipped from CASH/LONG to LONG with Tuesday's action. This timer is telling us that IF today is upward by 10-10:30, that we can put some money down on long positions.

GGT Strength, across the entire database of stocks, has jumped from 0.3321 to 0.7171 in two days. This is a huge delta -- meaning we are seeing broad, fast participation in terms of price and volume action of LONG-rated positions -- which I see as a bullish sign. This being stated, once we cross the 0.7 line, history has shown that we tend to reverse a bit, and we're there.

Last weekend I introduced a new concept in tracking the strength of various groups. While it is far to early to tell, the DJ30 was bottoming with a strength of 0.04, and I recommended purchasing either the ETFs following the Dow or the DJ30 stocks themselves. I paper traded the DDM, the 2x leveraged of the DJ30, and luck of the Irish would have rewarded us. If you bought at the 10:30 price of $36.35, as of last night's close at $38.01 you'd have an unrealized gain of 4.5% in two days.

The DJ30 strength is 0.711
NDX100: 0.714
Brazil: 0.95 (recommend closing any Brazillian ETFs or stocks)
Russia: 0.64
India: 0.79
China: 0.78

While we may see another day upward, I think we need to be careful here. Certainly, I am not going to enter in any new positions in any of these areas, no matter how small.

============

Summary: I'm continuing to keep my powder dry. Yes, I've missed the run up the last two days, and yes, it does appear that with yesterday's action that this cycle may have some legs. I'm not going to chase it.

Regards,

pgd

Tuesday, October 6, 2009

GGT doesn't seem to be working ... why?

If you're trying to chase the market using GGT stocks and ETFs, you've undoubtedly been disappointed at the selections. I received a private message this evening :o) "complaining" that GGT wasn't working, and what were they doing wrong?

Simply put, if you're in this category, you're not doing anything wrong.

Let's make sure we understand how GGT works.

As of today, the GGT back-testing optimization period is two years. This means that when the squirrel is running in the cage, it is grabbing the last two years of price and volume data, then it tries to find the "best" EMAs and ROCs that make that sample set work over the past two years. "Best" is my term for a number of optimizations: I can optimize on peak equity, I can optimize on Calmar Ratio, or I can optimize on plateaus. It varies, and I cycle through the optimizations every 4-8 weeks, depending on what is coming next. The values you see updated in the ETF and stock files are the best-performing values in the context of a 1-year lookback.

So, optimization looks back at 2 years, the values in the spreadsheet are compared to existing values that are established over the last year. Whatever one does the best get's the most recent slot in the appropriate ETF or stock files that I post.

The EMA range is intentionally limited from 2 days to 25 days. This means that EMAs above 25d in length are not considered. I've toyed with letting this go to 34, but for now, it's 25. If you scan down columns R-W in the spreadsheets I post you'll not see anything shorter than a 2, nor will you see anything longer than a 25.

Of particular importance are the values in columns R, S, and T. The first two are price EMAs, and the value in column T is a volume EMA. If the first two values are relatively small -- 2, 3, 5, 6, whatever -- then this ETF or stock will respond quicker to changes in price. Alternatively, if these values are 11, 17, 20, etc., then this ETF or stock will respond quite slowly.

The values in columns U-W are important -- these are Rate of Change columns. These values too influence the Long/Cash calls; if they are small in value the ETF will respond a bit faster; if they are large it responds slower.

What we're seeing right now is that stocks and ETFs are actually somewhat bound between two ranges. The drop up until last week moved us down to the lower part of a channel, and the rally the past two days has moved us upward towards the ceiling of that channel. The period (or duration) of these oscillations is relatively short -- on the order of a week or two -- and expecting ETFs with a series of EMAs/ROCs to respond when they have values longer than 10 or so is a tall order.

With respect to the "average" values, the ETF file presently has an average value of 9.23 days, so we're going to see some delay. By the time some of the GGT ETFs change, the new trend is already half exhausted. By contrast, the average value of the stock database file is 7.91 days -- shorter, but not tremendously so.

As the administrator, I have two options. I can shorten the range permitted from 2-25 down to 2-18 or so, or I can stay the course. I've decided to drop it to 2-18 as a test, but it'll be several weeks before we see any output into the daily sheets since it takes about 3 minutes per stock/ETF. If I see more whipsaws in horizontal markets be aware that I'll move this back to 25...

You, as the user of the data, really do not need to do anything. If you're frustrated with GGT, then simply paper trade your favorite ETFs/stocks until you feel more comfortable. I posed some ideas about how to "ride the wave" this past weekend (see below).

Regards,

pgd

Saturday, October 3, 2009


October 3rd Weekend Update



[**** CLICK ON ANY CHART TO ZOOM IN *****]

This has been a pivotal week according to the Gods: warning signs from the timers, prices lower on higher volume, and EMA lines going from a positive slope to a negative slope. Let's see if we can glean what it all means....

In last week's commentary I noted that for the week ending the 26th, we peaked in price at $19.28 on average volume, which was disappointing. This week we finished at $18.39 on average volume of 1.5M shares, a full 3.6% down from our peak on Monday of $19.08. I also said that I thought that we'd start climbing because prices were falling on weaker volume -- I am going to change that view into my crystal ball for a couple of reasons.

On Monday, 9/28, we spiked upwards 1.9% in price on volume that was 25% lower than average --> this is bearish.

On Tuesday, 9/29, we changed price by only -$0.01, yet volume was about normal. This is my definition of "churning" -- stationary price on normal or higher volume. This is a bearish sign.

Volume popped to 18% above average with Wednesday's action, but we had a decrease of only 0.4% in price. This is further evidence of churning, and is bearish.

Thursday was a big signal day. We saw a large jump downward in prices on Thursday of -2.66% on volume that was 12% higher than average.

Friday, we saw decreasing prices of another 0.5% on normal volume --> bearish.

**** On price and volume action alone (falling prices on higher volume), we have very bearish indicators when looking at the short term. ****




So what about the short, medium, and long terms?

The 5d EMA of price has crossed below the 8d as well as the 13d, and is just hovering above the 22d. The 8d EMA has crossed below the 13d, and this should be considered short-term bearish.

A move of the 13d below the 22d would signal nailing the coffin shut -- we'll have to wait and see just how bad things get going forward. The 22 and the 34 are intermediate-term timers, and they are marginally bearish/bullish. With the 22d and 34d in a new down-trend, which started this past week, I'd have to color the intermediate term as bearish.

The 55d and 89d EMAs are still in uptrends.

Hence, short term, we're not in very good shape, medium-term, things are falling and getting worse, but over the long term, we're still in an up trend.

===============

In last week's commentary I discussed a divergence between price, which peaked mid week that week, but we saw a continued drop in the Long-Cash Ratio (LCR), which is the ratio of stocks with a LONG recommendation compared to those with a CASH recommendation. It appears that when combined with the price/volume information that we had a very, very good setup for this drop from our peak prices.

For this week, the LCR has fallen to 0.628, indicating that 2105 stocks are LONG and 3352 are CASH. This is a huge change from last week's value of 1.584, and being below 1.0, is a solid precursor to being intermediate-term bearish. Note that the value is below 1.0 -- if we hold here this week, get out your hammer and nails ... :) This being said, when we hit this level on 9/3 (0.698), we rebounded nicely within a few days and it lasted the entire month of September, so there is some precedence that a bounce could be around the corner. Note I said a possibility, as in non-zero probability, but not necessarily likely....





In addition to the Price/LCR data above in the graph, I've notated something interesting... several "W" patterns. Another idea supporting this potential for a bounce is that:

1) we are at some historical levels in the LCR where we have reversed, and
2) the market seems to like these "W" patterns as of late

So, if we do bounce this coming week and next, I doubt that it will be a full-run upwards with the LCR in the 2.x or 3.x range. Of course, I could be wrong, but I don't see anything that will propel us upward at this time.

===============

Our short-term LCR Change timer started the week with a transition from -1 (cash) to 0 (cash/long), but by Wednesday was back at (-1) cash and hasn't budged from that position. I've been reporting that the gain of this timer has been 54%; due to a clerical error the actual gain using this timer and the GGT change in prices is 51% on the long side and 28% on the contra side. Here's the timer since March 1st:



The way to trade this timer is straight forward:

1) Determine whether you are in an up-trending market or down-trending market. You have several tools available to determine this:

  • a) look at the 65d EMA price of the broader market indexes. Are they in an upward slope? As of the close of 10/2 the answer is yes
  • b) look at the 10w EMA price of the broader market indexes. Are they in an upward slope? As of the close of 10/2 the answer is yes
Since we are in an uptrend, then we have a green light to pursue LONG-sided equities:

1) when the timer transitions from a CASH (-1) to a CASH/LONG (0), look for long equities that have been beaten into the ground. Call this Day #1.
2) when the timer transitions on Day #2 from the CASH/LONG (0) value to the LONG (+1) value, jump into the market, either on Day #2 (anticipating the transition), or on Day #3.

I like to jump into the market ON THE DAY of the transition from 0 --> +1. One way to do this, that generally works, is to watch the ADV/DEC on the various indexes. Here's a rip from the web site: http://finance.yahoo.com/advances using the close information on 10/2:




NYSEAMEXNASDAQBB
Advancing Issues1,211 (32%) 250 (32%) 959 (34%) 484 (35%)
Declining Issues2,487 (65%) 485 (62%) 1,740 (62%) 548 (40%)
Unchanged Issues122 (3%) 50 (6%) 111 (4%) 350 (25%)
Total Issues3,8207852,8101,382
New Highs1102334130
New Lows38821372
Up Volume2,393,431,427 (107%) 299,804,561 (28%) 763,956,486 (31%) 750,485,914 (33%)
Down Volume4,092,235,140 (184%) 772,497,022 (71%) 1,691,920,477 (68%) 690,739,264 (30%)
Unchanged Volume37,889,205 (2%) 12,694,707 (1%) 28,760,732 (1%) 845,944,003 (37%)
Total Volume2,228,588,47611,084,996,29012,484,637,69512,287,169,1811
1 = Total volume calculations include volume from pre-market and regional exchanges.

Take a look at the NYSE column, and let's pretend that it's 10:30 a.m. on Day #2. We're looking for a high probability of a transition to +1. What I like to see is that the ratio of ADV to DEC is up greater than 1.8. For the NYSE we have 1211/2487 = 0.48, which is far less than 1.8, so we know with great likelihood that we probably will not be transitioning to +1. Because of this, go play golf or participate in your favorite past time, because the market is not moving in the long direction. SURE, it can reverse during the day, at at night we can double check the values, but on average, when the markets indicate a good upside by 10:30, they tend to stick.

So for this coming Monday, 10/5, we're at a value of -1 (CASH), so unless we're up on Monday, it's not likely that we'll be doing anything with this timer before Tuesday, 10:30.

What about contras? What about picking up contras when we transition from a +1 (LONG) to a 0 (LONG/CASH)? Again, it depends on the underlying trend of the market. What I've found is that in up trends, LONG positions work better; in down trends, Contra positions work better. There are other ways to play the contras at this time....

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The graphic above is the GGT Bull Strength index compared to the GGT LCR. I *really* like the bull-strength indicator because it shows that while we may continue to hit higher highs in GGT LCR (and subsequently, price), it gives me a GREAT indicator of whether momentum is fading. Take a look at the peaks in Bull Strength, then take a look at the peaks in LCR. I'd be interested in hearing your interpretations.

Note that the GGT Bull Strength reading is at 0.08, the lowest level since 8/17. Putting this in to stock terms, we had 232 stocks in the database flash "buy me", while we had 2872 flash "sell me". That should give you pause on what you should be looking at on Monday. There certainly is precedence to stay down here for a while, but there is also precedence to bounce. I suggest waiting until the LCR timer moves to the +1 side ...

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The graphic above is interesting in that GGT strength has slipped below the visual boundary of 0.4. There's nothing magic about 0.4, but the eye shows that we seem to have a bit of support around the 0.3-ish level in strength. If we fall below this level market sentiment will be very bearish and there is no telling just how far it could drop (look at February/March). I would consider the recent attempt at crosing above 0.7-ish as a failed bull attempt, so stocks are becoming weaker, not more powerful.

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Last week I presented TMF, a 3x leveraged ETF that had signaled "New Long" on 9/25. The closing price on 9/25 was $45.74, and the opening on Monday was $46.13. I indicated that I was setting a 3% gain on this one as my target, which is around $47.50 from the 9/25 close. Through a calamity of errors and not paying attention this ETF, it has run all week, and closed on Friday at $47.85, or a weekly gain of 3.0%. If you got into this one I'd like to hear about it; if you're not in on this one it's too late -- don't chase it.

UUP is the only "New Long" ETF from Friday. This is the PowerShares DB US Dollar Index Bullish Fund, which is based on the Deutsche Bank Long US Dollar Index (USDX). The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and the Swiss Franc.

UUP is not overly volatile, nor is it a barn-burner. I am going to enter on Monday with a core position if we trade higher than $22.92, the high from Friday. The 22d EMA is just starting to break upwards, and the 13d EMA has a positive, upward slope. My "core" positions are typically 5% of my tradeable monies. Note that UDN, which is the contra to UUP, has a downward 13d EMA and the 22d EMA is just beginning to point down. I like that these two are out of sync by 180 degrees.

On Thursday the Direxion 3x LargeCap pair BGU/BGZ flipped to Cash/Long respectively, and flashed the "Affirmed" flag on Friday. The 8d EMA of BGZ crossed the 13d EMA from below, a bullish sign. I will move into BGZ on Monday with a 25% position if it continues higher than $23.80. The recent Average True Range (ATR) of BGZ is $1.09, or nearly 5%, so this is a volatile equity and is NOT for the meek or conservative. My target is 5% above my entry, somewhere around $24.39 or so.

On Thursday the Direxion 3x MidCap pair MWJ/MWN flipped to Cash/Long respectively, and both flashed the "Affirmed" flag on Friday. The 8d EMA of MWN crossed the 13d EMA from below, a bullish sign. I will move into MWN on Monday with a 25% position if it continues higher than $$35.96. The recent ATR of MWN is $1.91, or over 5%, so this is NOT a conservative equity. My target is 6% above my entry, or somewhere around $37.54.

The TSP-tracking ETFs EFA, SPY, and VXF, all signaled "New Cash" this week. Correspondingly, I moved my wife's TSP funds (I-Fund, C-Fund, S-Fund respectively) to cash (rebalanced AGG/F-Fund at 8%) as of the close of Friday (it takes a day or two to process within the TSP system).

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Something "New"

One of the powerful aspects of GGT is that I can determine the strength of a given index, sector, whatever. As many of you know, Geoff Cox recently expanded some of my capabilities and gave me a "dashboard" view, allowing me to watch (e.g.) the DJ30, the NASDAQ-100, and the BRIC stocks. I'm only limited by however I want to group the stocks.

I can normalize the strength value for a group between 0 and 1, so we can compare strengths across different groups.

I only have data since 8/24, so it's too early to make a judgment on how to best use this capability. Let me present some initial ideas:

1) The DJ30 hit a strength of 0.9412 on 8/25. If you would have purchased DOG, the -1x ETF at the open on 8/26 @ $58.26, then held until the strength bottomed on 9/2 (selling at the open on 9/3 @ $59.62), you would have made a gain of 2.3% in 6 days with virtually no drawdown.

2) Using the strength dates above, if you would have purchased DXD, the -2x ETF at the open on 8/26 @ $36.85, then held until the strength bottomed on 9/2 (selling at the open on 9/3 @ $38.35), you would have made a gain of 3.8% in 6 days with virtually no drawdown.

3) Let's assume that you wanted to pick up DJ30 stocks on 9/3 (strength bottomed on 9/2). Let's further assume that you would hold until 9/17, which is when the DJ30 strength had peaked and had started to head downwards. You sold at the open on the morning of 9/18.

a) Selecting stocks from the DJ30 that had the worse VectorVest VST performance (they had been beaten down hard up to 9/3), would have resulted in a gain of 8%, or an annualized gain of nearly 218%.

b) Selecting stocks from the DJ30 that had the worse VectorVest RT performance, would have resulted in a gain of 6% with an annualized gain of nearly 150%

c) While I don't publish the stock data daily, I do have the GGT stocks from 9/2, and more importantly, I know which stocks were at the top and bottom of the GGT DJ30 list. Picking the top 10 GGT DJ30 stocks as of the 9/2 close, and holding until the morning of the 18th would have netted you 6% and an annualized gain of about 150%.

d) Picking the worse GGT stocks from 9/2 and holding until the morning of the 18th would have netted you 6% and an annualized gain of about 150%.

Sooooooo, three different methods of picking DJ30 stocks results in about the same performance over the same period of evaluation. I like that. I like that ALOT.

4) So let's assume you bought the -1x contra ETF at the open on 9/18, and you're still holding. You would have bought DOG at $56.34, and with a close on Friday at $58.37, you would have an unrealized gain of 3.6%.

You get the idea of where this is going.

Here's the normalized strengths if you want to play:



When you look at the table above, you'll see that the DJ30 column is at a very low number. It would be prudent to seriously consider purchasing stocks in the DJ30, based on past tests. I urge you all to paper trade this until we get more history. If nothing else, take a close look at DIA as well as DDM, which are the 1x and 2x ETFs for the DJ30.

When you look at the table above, you'll also see that the NASDAQ-100 is near a bottom, also indicating that we should consider purchasing stocks in the NASDAQ-100 or at least the long ETFs, which are QQQQ and QLD.

When you look at the table above, you'll see that Brazil is bouncing around. I'm sure that the Olympics caused Friday's bounce ... I'm not aware of any contra ETFs in Brazil so we'll have to wait until this one bottoms.

Russia is hard to judge -- only 5 stocks comprise this "strength index", causing me some pause. Nevertheless, the value is on the negative side, which *could* present some opportunity to purchase once we start turning upward.

India is mid-scale at 0.4 -- hold off on India.

China has been falling lately, and although we could play the FXP, the contra Xinhua FTSE 25, according to the strength of the China index, we may be too late. Ideally, I'd like to get into FXP when the strength index is near 1.0, not at 0.13.

Also note that FXP signaled "New Long" on Thursday. I wanted to wait until the EMAs all crossed from below, which they did on Friday (recall that I was burned on this one a few weeks ago). The 8d > 13d, and the 13d > 22d --> go for throttle up, but because of the China strength index, I'd expect some sort of pause here. Based on these two conflicting indicators I will purchase a 25% position in FXP on Monday if the price continues higher than $10.68, and I'll add on strength as long as the trend lines remain positive. The recent ATR on this is $0.43, or about 4%. My target on this one is $11.32 or about 8% over entry.

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Enough for now. Lots to think about.

Remember, you're responsible for your own investment decisions.

Regards,

pgd